Explain the facts on which Economic Order Quantity is depend
Economic Order Quantity depends on two costs:
(i) Inventory procurement costs which consists of expenditure connected with
* Obtaining quotations
* Processing Purchase Requisitions
* Expediting and Following up Purchase order
* Receiving materials and after that inspecting them Processing Invoices Procurement costs of seller reduce as the order quantity raises.
(ii) Carrying Costs that vary with quantity ordered contains
* Interest on capital investment
* Cost of storage services
* Cost including deterioration and obsolescence
* Cost of insurance and property tax etc.
Carrying costs are approximately directly proportional to the order size or lot size quantity.